IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies and Common Policies in Support of Member Countries Reform Programs

IMF News, December 19, 2023

Source details

Canonical URL: IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies and Common Policies in Support of Member Countries Reform Programs

The CEMAC economy continued to recover, supported by favorable hydrocarbon prices, strengthening its external position.
Real GDP growth accelerated to 3.0 percent in 2022.
The external position strengthened with rapid accumulation of foreign exchange (FX) reserves, though still below adequate levels.
The regional policy assurances on net foreign assets (NFA) set for end-June 2023 (EUR 4.47 billion) were met by a comfortable margin (EUR 880 million).
NFA rose through mid-2023 but was reversed in 2023Q3, with NFA falling, driven by a likely deterioration in the current and financial accounts, partly reflecting the combined effects of a steep drop in FX repatriations by the public sector, and dividend payment outflows from the banking sector.
Inflation spiked to 6.7 percent at end-2022 and continued to climb in early 2023, as price pressures broadened; preliminary estimates suggest it decelerated in 2023Q2.

The Central Bank (BEAC) left the policy rate unchanged at 5 percent at the September 2023 meeting, after having raised it by a cumulative 175 basis points between November 2021 and March 2023.
BEAC tightened banks’ refinancing conditions by discontinuing weekly liquidity injections at its main refinancing window and stepping up liquidity absorption operations.
BEAC continued making progress on enforcement of FX regulations.
BEAC and the Banking Commission of Central Africa (COBAC) continue to work together to examine refinancing plans of banks structurally dependent on BEAC’s refinancing.
Directors welcomed BEAC’s data-dependent approach to monetary policy and tightening of liquidity conditions, and urged BEAC to stand ready to further tighten monetary policy as needed to anchor inflation expectations and bring reserves back to adequate levels.
Directors welcomed BEAC’s decision to further increase the interest rate on its liquidity-absorbing operations and its commitment to align this interest rate with the policy rate within a relatively short timeframe, to strengthen monetary policy transmission.
Continued enforcement of FX regulations transparently and consistently remains a priority.

GDP growth is projected to slow to 2.6 percent in 2023—mainly owing to a contraction in hydrocarbon output.
Inflation is projected to decelerate to 4.9 percent by end-2023.
In the medium term, growth is projected to pick up gradually to around 3.5 percent, mostly owing to a rebound in the non-oil sector as structural reforms take effect.
Public debt is projected to decline to about 43 percent of GDP by 2028, down from about 54 percent of GDP in 2023.
The current account balance is projected to deteriorate to -1.9 percent of GDP in 2023, and to about -4 percent of GDP over the medium term.
Gross reserves are projected to rise to about 4.7 months of prospective imports in the medium term, slightly below staff’s adequate metrics for a resource-rich monetary union (5 months).
These projections assume forceful actions to tighten liquidity conditions, greater compliance of member countries with foreign exchange regulations, stronger fiscal discipline, and acceleration of structural reforms.
Risks to the outlook remain skewed to the downside and include: declining commodity prices; tighter financial conditions; heightened political uncertainty; further fiscal slippages; entrenched inflation; financial instability; slow progress on structural reforms; food insecurity; domestic conflicts and insecurity; and climate-related events.

Maintaining fiscal consolidation paths consistent with Fund-supported programs and surveillance advice, and accelerating structural reforms are critical for boosting economic diversification and resilience.
In light of recent fiscal slippages, Directors stressed the importance of bringing policies back in line with fiscal consolidation paths consistent with Fund-supported programs and surveillance advice to strengthen resilience to shocks.
Policy actions recommended by Directors include:
- Improve non-oil tax revenue mobilization.
- Improve expenditure efficiency and rationalization, including reforming inefficient energy subsidies while protecting the poor.
- Strengthen debt management and address fiscal risks from SOEs.
- Accelerate structural reforms in governance and regulation to bolster economic diversification, inclusiveness, and resilience to shocks, including climate shocks.

Directors stressed the need for strong collective action from national and regional authorities to preserve financial stability.
Urgent supervisory priorities highlighted by Directors:
- Swiftly address COBAC’s longstanding supervisory capacity limitations.
- Strictly enforce regulations for non-compliance and resolutely resolve weak banks.
- Ensure banks adequately account for sovereign exposure.
- Strengthen the AML/CFT framework.
- Strengthen supervisory framework and capacity to monitor and manage new risks posed by digital payments and assets.

The CEMAC Commission has continued regional surveillance consultations in all member States, while the Permanent Secretariat of CEMAC’s Economic and Financial Reform Program (PREF-CEMAC) is overseeing implementation of the region’s structural reforms action matrix.
Directors reiterated concerns about the delayed adoption of the draft new sanction mechanism for breaches of regional surveillance rules and encouraged renewed efforts towards swift adoption.
Directors considered that BEAC met the policy assurance on the NFA for June 2023 provided in the June 2023 follow-up letter and endorsed the updated policy assurance on NFA accumulation for end-December 2023 and end-June 2024 outlined in the December 2023 Follow-up Letter from the BEAC Governor, emphasizing that implementation of this assurance is critical for the success of Fund-supported programs with CEMAC member countries.

IMF Executive Board press release — December 19, 2023